AIB remains open to idea of mortgage rate cut

AIB has reiterated to shareholders that it is actively considering cutting the rate of interest it charges mortgage customers.

Speaking at the bank’s AGM in Dublin yesterday, chairman Richard Pym said further rate reductions for new and existing customers “are something that the management team and board continue to consider”.

AIB lowered its standard variable mortgage rate by 0.25% late last year.

Outgoing chief executive David Duffy told the Oireachtas finance committee, last week that the bank could, in the summer, cut its SVR from the current level of 4.15% if its cost of funds and risk continue to reduce.

“Interest rates must take into account the cost of risk attached to a loan, the operational costs involved in running the bank, and the need to generate returns for shareholders. All of these factors differ from bank to bank and across countries,” Mr Pym said yesterday.

The main banks have come under attack for charging high SVRs in comparison to the eurozone average of 2.05%.

At yesterday’s AGM, consumer activist Brendan Burgess and Independent TD Shane Ross urged AIB to make a cut of at least 1% in its standard rate.

AIB accounts for 140,000 of Ireland’s 300,000 or so variable rate mortgage holders.

Mr Ross also attacked Mr Pym’s reference to good customer loyalty, saying that AIB and Bank of Ireland are effectively acting like a cartel with regard to customer charges. He claimed customers would go elsewhere if they could.

Mr Pym rejected the idea of a monopoly, pointing to a recovering competitive banking landscape. “Over the past few years, AIB has focused on building a culture that emphasises the needs of our customers in everything we do,” he said.

Lauding a “milestone” year in which AIB returned to profit, Mr Pym noted that a third of the bank’s balance sheet remains distressed and added that AIB’s “fundamental priorities” are to keep residential mortgage customers, who are in arrears, in their homes where possible and to “secure the future of viable companies and protect employment”.

The bank’s management remained tight-lipped over other issues, including a timeframe for Mr Duffy’s successor to take charge, or even their identity; it is widely reported that its current retail/business banking head, Bernard Byrne, will take up the position.

Mr Pym also declined to comment, at length, on what progress is being made regarding AIB’s return to private ownership. He said discussions with the Department of Finance with regard to the State-owned bank’s capital structure are ongoing and that the issue of an IPO is under review.

Discussions are focused on options for AIB’s €3.5bn 2009 bailout loan from the government, which could be changed from preference shares to ordinary shares; and the €1.6bn in contingent capital notes, which mature in July. A significant consolidation in the bank’s ordinary shares is also possible, given there are currently as much as 523bn in issue.

“Our ordinary shares are currently trading on a valuation of around six times the net asset value of the group, at the end of December. That compares to the median for comparable European banks, of around one times net asset value. I cannot think why a reasonable investor would think that this bank is worth six times its net assets,” Mr Pym said.